The Disadvantages of Scale in Maritime ShippingMaritime shipping, more than any other form of
transportation, benefits from
economies of scale
since they have a direct impact on its operational costs. There has
thus been a tendency to deploy larger ships, particularly
in container shipping, to service high volume trade routes such as
between Asia and Europe. A common issue with the application of
economies of scale is that the maritime shipping company is
internalizing its benefits since they have a positive impact on
its operations, while externalizing many of the costs to other
actors along the maritime transport chain. These actors,
particularly terminal operators, trucking companies, railways and
distributors,
are then facing the challenge to mitigate these externalities,
often with capital investment projects.Diseconomies of scale are a common economic concept
stating that after a specific level of output the input
costs per unit of output are starting to rise. There is thus
no incentives to increase the output of the particular unit
beyond a threshold. A fundamental
issue is that although the concept of diseconomies of scale
applies to maritime shipping, port operations and hinterland
distribution, it does not
involve the same threshold for each. In this hierarchy
of scale economies, maritime shipping
has the highest potential,
followed by terminal operations and then hinterland
distribution. Each transport segment cannot be massified to the same extent
because of technical, regulatory or operational
consideration. As such, the term
disadvantages of scale is used mainly
because that although the benefits of economies of scale
still apply in the maritime segment of the transport chain,
these benefits are not well shared with other actors. Some actors
may even be negatively impacted. Therefore, the concept of the
disadvantages of scale in maritime shipping covers three
dimensions:

Port of call issues. Larger ships
require deeper drafts, which can limit the number of
ports able to accommodate them. Many ports
terminals around the world were built to handle Panamax
ships, which has been a standard scale for a century. Less
port of call options can limit the commercial appeal of
larger ships since their market coverage is more
limited, inciting a greater reliance on transshipment.
In light of this trend, several ports have faced the
pressure to invest in infrastructure expansion projects, such as
new cranes, yards and dredging port access to deeper
drafts (with 50 feet being a common goal). These
infrastructure projects are highly capital intensive and
may only result in being able to keep a similar amount
of traffic being handled. Additionally, larger ships are calling the
same ports less frequently and the need to improve their
load factor can result in worsened schedule reliability.

Terminal operations. A way to
increase the capacity of a ship is to make it wider,
which requires cranes with a deeper reach (a post-panamax
ship has between 15 and 23 containers in width as
opposed to 13 for a Panamax ship). Further, larger ships
require a higher level of terminal throughput since a
greater amount of cargo must be handled roughly within
the same port call time. This places
pressures on terminal operations due to a time
compression of the cargo handling, requiring more yard
space and equipment. Terminal gate access is also facing
constraints as more trucks are entering and exiting the
terminal during the same timeframe. Fares that are paid by maritime
shipping companies, such as port fees, are essentially
remaining the same on a per TEU basis, implying that the
terminal operator does not necessarily see a growth in
its revenue with larger ships. Capital investment in infrastructure, often
assumed by publically owned port authorities, are
therefore even more difficult to amortize. Larger ships could
actually involve a decline in terminal capacity because
of the time compression of cargo operations larger ships
impose.

Supply chain constraints. These
external issues are often neglected when considering the
impacts of using larger containerships since they
concern beneficial cargo owners not involved in
transport operations, but in supply chain management.
The coordination of supply chains can be impacted in a
significant manner, since a lower frequency of port
calls imply the necessity to hold higher inventory
levels, both in warehouses and in transit. For instance,
an importer facing decreasing port of call frequency,
would be forced to maintain a higher inventory level in
its distribution centers to maintain a similar average
lead time and meet the expectations of its customers.
More cargo being carried on a single ship also
represents a greater risk for partial loss or damage,
particularly near ports, involving higher insurance
premiums. For instance, the value of the cargo carried
by a standard container can range between $50,000 and
$100,000. For refrigerated containers, it is much
higher, in the range of $1 million. For pharmaceuticals,
cargo loads can go as high as $50 million. Still, the risk factors of mega containerships
remain to be better assessed by the insurance industry.

All of the above underline ongoing discrepancies between
maritime operations, terminal operations, hinterland
distribution and supply chain management. Maritime shipping
companies appear to be the only beneficiary of economies of
scale in ship size. If the disadvantages of scale for the other
actors in the transport chain are taken into account, the
economic benefits of larger containerships maybe limited. Still,
economies of scale are contingent upon the trade routes, the
ports of call sequence and even the general nature of the cargo
being carried. There is thus no standard optimal ship size.